Glencore sells stake in agri business to pension fund for $2.5bn
The Swizterland headquartered group said the sale to the Canada Pension Plan Investment Board (CPPIB) will allow it to reduce its debt burden.
Glencore, as per the agreement, can also divest up to 20% more of its agri unit, valued at $6.25bn, after four years. Furthermore, according to the deal, either partner can call for an IPO eight years on.
The transaction, set to close in the second half of this year, is subject to the standard regulatory approvals.
Glencore Agri is a vertically-integrated business focused on the trading of wheat, corn and barley along with soybeans, rice, sugar, pulses and cotton. It involves a network of origination and logistics assets, comprising over 200 storage facilities, 31 processing facilities and 23 ports, strategically located worldwide.
The division reported earnings before interest and tax for FY2015 of US$524m. The dramatically reduced profits were said to reflect the depressed grain commodity prices globally.
“We've had softer markets in 2015, very difficult commodity markets with the prices coming down on the back of China, oversupply in the markets,” said Ivan Glasenberg, CEO, in a conference call on Glencore’s earnings in March.
Commented on a potential sale of a stake in its agribusiness then, he said such a move was eagerly anticipated and would not be a “forced disposal.”
“This is an idea we've had for some time, to bring partners into our ag business, which will give us the power and the base to continually grow [it],” said Glasenberg.
US ambitions
The CEO said, under Glencore’s ownership, the business has been successfully rebased, particularly following the Viterra acquisition for $4.6bn in 2012 and it is now “well-positioned” to benefit from long-term global macro and sector trends.
“We like the ag business; we've been in it for many years. However, we do believe this is a business that needs to grow. We are not active in various parts of the world and you need to grow in those parts of the world. It's no secret.
We're pretty weak in the US but strong in other areas of the world. To grow in that business, you're going to need more financial muscle. We did buy Viterra. Viterra is a company that was already public, so we had the financial muscle to do the Viterra stake. But to do stuff bigger, it's clear it's time to bring in a partner,” said Glasenberg in response to analysts’ questions during the March conference call.
Commenting today, the CEO said CPPIB was chosen on the basis it had a proven track record in the sector.
Mark Jenkins, senior managing director and global head of private Investments at CPPIB, said agriculture is an excellent fit for a long-term investor. “Glencore Agri complements our existing portfolio of agriculture assets, bringing global exposure, scale and diversification,” he said.
He also stressed the combination of the experienced management team at Glencore Agri and the business model made it a “compelling” investment.
